They say ‘if at first you don’t succeed dust yourself off and try again’ – while this may be true entrepreneurs might want to take a slightly different direction to avoid repeating the same mistakes, especially in South Africa where a majority of small businesses fail within the first year of operation.
By paying close attention to what the market needs or will need in the future and being able to tweak your business model to suit those needs can mean the difference between a business’ failure and success.
This change in strategy is called pivoting, says Anthony Nathan, co-founder and CEO of TMARA, market adoption strategy firm based in Johannesburg and Pretoria.
“Pivoting is in essence course corrections (structural changes) you are making in the process of searching and finding your best business model. It is like a guided missile, in search of its target.
“The target is not totally clear, and you need to constantly correct your course, to make sure you hit the target perfectly”. The target in this case, is the market’s perception of value or the market’s sweet spot, the criteria where the market will see your product as a “must have”, he adds.
Test your idea’s viability
You don’t want to introduce a product or offer a service that no one wants, says Nathan.
However, because it’s difficult to accurately predict at the start what the customer’s reception will be to your product or service, it is vital to test it in the market.
“If the market doesn’t respond positively, then you have to make some changes, and test again.”
Once entrepreneurs find a strategy that works, they can introduce the pivot in the business model, he adds.
This “trial and error” approach can be effective, says Nathan, but it can also be financially strenuous, with many entrepreneurs running out of funding before having pin-pointed what works and what doesn’t.
He suggests that the process be executed quickly with as minimal, but still workable, resources as possible.
Don’t pivot on hope
Nathan says the foundation of any successful pivot is thorough research and solid data, not assumptions. Entrepreneurs need to do extensive research about their market before introducing a product or service.
In addition to this, entrepreneurs need to know enough about their market to be able to anticipate any future changes their businesses might have to make.
This means a business’ model may have to undergo more than one pivot, even if the first one is proved successful – in order to keep up with any potential changes in the market.
Here are Nathan’s 5 steps for a successful pivot:
- Define the target market – don’t just shoot into the dark, in the hope of hitting something
- Define the sweet spot of the target market – in other words, define the criteria where the market will see your product as a “must have”. Too many start-ups, just use the shot gun technique, and don’t even consider where the potential sweet spot of their market is.
- Align your business model and market offer, to deliver what is absolutely necessary to hit the sweet spot or “must have spot”.
- Do a proper test and conclude what is the new hit rate (the number of successes in sales compared to the number of sales visits made) – say, 70 out of 100 – [products] bought. From the hit rate, you can consider if the changes are worth the effort, before you pivot.
Pivots that changed the world
Some pivots have grown into multimillion dollar businesses and gained world-wide success, and it all began with a change in strategy.
The digital age is responsible for some of the most drastic pivots, mostly because of advanced innovations in technology. Now with millions of users, micro-blogging site, Twitter started as a podcast network. Fearing that iTunes would dominate the podcast niche, the founders made the decision to go in a different direction and created what we now know as the 140-character app.
Avon Products is a result of a successful pivot by its American founder David H. McConnell, an entrepreneur who started off selling books door to door to a mostly female customer base over 100 years ago.
He made the change from selling books to cosmetics after realising his customers were more interested in the complementary perfume samples that came with book purchases than the books themselves. Today Avon is a billion dollar company that operates worldwide.